Tesco's UK Sales Disappoint; Strong Sales Overseas

Tesco, the British supermarket behemoth which is developing in the US, Europe and China, suffered sales falls in the non-food part of its key home market in its first quarter.

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A general view of the Tesco Extra superstore in New Malden, Surrey, England.

The consumer environment was "cautious" in the UK and still "constrained by weak demand, particularly in general merchandise," the retailer said in a statement where it also noted that "overall, our UK business continues to grow faster than the industry as a whole."

The supermarket chain, which gets close to one pound in every seven spent in the UK, was boosted by a string of bank holidays and the Royal Wedding in April. Overall like-for-like sales, excluding petrol were up by one percent.

When the rise in Value Added Tax was stripped out, they fell by 0.1 per cent, compared with a 0.6 percent increase forecast by analysts polled by Reuters.

Growth was much more promising in the international side of the Tesco business, with sales up by 8.6 percent in Asia, where it has stores in China, Thailand and Korea.

The Fresh & Easy business in the United States, which struggled when it was first launched in California, performed well, with like-for-like sales growth of 11.1 percent, the retailer said in a statement.

"Tesco has made a good start to the new financial year, despite consumer sentiment in many of our key markets remaining subdued," Philip Clarke, recently appointed chief executive of Tesco, said in a statement.

"Uncertainties remain but with early, encouraging signs of better performance emerging in both the UK and the US, I am confident that this start will provide the platform for another year of growth and rising return on capital employed for Tesco," Clarke added.

Food prices have risen as the price of ingredients such as wheat has soared.Home Retail Group raised alarm over the state of the British high street last week, when it reported that sales from Argos stores open at least a year down almost 10 per cent in the 13 weeks to May 28.

There have also been concerns that there is less room for Tesco, an ubiquitous presence on British high streets, to grow.

“Tesco has less space to grow without cannibalizing existing space, which is hardly a problem for Asda, Sainsbury and Morrisons,” analysts at Matrix said.